System for and method of risk minimization and enhanced returns in an intellectual capital based venture investment

ABSTRACT

The disclosure relates to an investment risk minimization system involving a venture capital investor and a venture needing investment from the venture capital investor. In such a system, an exemplary method can include providing an investment to a venture having an intellectual asset, and receiving a security interest in the intellectual asset. The security interest secures an ownership right upon failure by the venture to meet established parameters. Further, if the venture receiving the investment fails to meet the established parameters, the method includes obtaining an ownership interest in the intellectual asset, valuing the intellectual asset, and transferring the intellectual asset to a charitable organization.

CROSS-REFERENCE TO RELATED APPLICATIONS

The present application is a continuation of U.S. application Ser. No.09/814,547, filed Mar. 22, 2001. The foregoing application is herebyincorporated by reference in its entirety.

FIELD OF THE INVENTION

The present specification relates generally to investment methods andsystems. More particularly, the present specification relates to asystem for and a method of risk minimization and enhanced returns in anintellectual capital based venture investment.

BACKGROUND OF THE INVENTION

In general, investors attempt to minimize the risk associated withinvestments. Heretofore investors have attempted to minimize riskassociated with investing in ventures by assessing quality ofmanagement, business model risk, market opportunities, and possiblereturns on investment (ROI). Nevertheless, predicting ROI can be adifficult and inexact practice.

Such investment risks are particularly prevalent with early stagestart-up or later stage technology dependent companies. Predictingsuccess in such companies can be very challenging. Often such companieshave few tangible assets that can be used as collateral in obtainingfinancing. Nevertheless, early stage and technology dependent companiescan have great value in intangible or intellectual assets. Intellectualassets can include ideas that may or may not be incorporated intopatents or patent applications. Intellectual assets can also includedomain names, trademarks, copyrights, know-how, trade secrets, and avariety of other intellectual properties.

Investors can invest in the form of debt (i.e., a loan), equity (i.e.,common or preferred stock), or a combination thereof. Conventionally,investors can recoup losses from failed investments (regardless ofwhether or not the investment was directed to early stage or technologydependent companies) by taking a tax deduction for loss or worthlessnessof the loan or investment. The amount, timing and characterization ofsuch a tax deduction differs depending upon whether the venture capitalor private equity firm is treated as an “investor” or in the “trade orbusiness of making loans”. Typically, venture capital funds are treatedas “investors” by the Internal Revenue Service (IRS). In such cases theloss can be taken as a capital loss. In order to take advantage of thiscapital loss, the burden is on the secured party to demonstrate that theloan or investment is completely worthless. Generally, such ademonstration involves either the commencement of a lawsuit against thedebtor to obtain a judgment and collection on the judgment or a strongshowing that taking such legal steps would not result in any recovery ofvalue or payment on the debt. The nature of the deduction, the timing ofthe deduction and the manner of satisfying the secured party's burden ofdemonstrating worthlessness are all highly fact sensitive and differfrom investor to investor and transaction to transaction.

Thus, there is a need for a system for and a method of risk minimizationand enhanced returns in an intellectual capital based ventureinvestment. Further, there is a need to recoup from losses incurred ininvestments other than taking a tax deduction for loss or worthlessnessof the investment or loan. Even further, there is a need to makeinvestment risk determinations where an investment is made in a venturehaving an intellectual asset, such as, a patent or patent application.

The teachings hereinbelow extend to those embodiments which fall withinthe scope of the appended claims, regardless of whether they accomplishone or more of the above-mentioned needs.

SUMMARY OF THE INVENTION

An exemplary embodiment relates to an investment risk minimizationsystem involving a venture capital or private equity investor and aventure needing investment from said investor. In such a system, anexemplary method can include providing an investment to a venture havingan intellectual asset, and receiving a security interest in theintellectual asset. The security interest secures an ownership rightupon failure by the venture to meet established parameters. Further, ifthe venture receiving the investment fails to meet the establishedparameters, the method includes obtaining an ownership interest in theintellectual asset, valuing the intellectual asset, and transferring theintellectual asset to a charitable organization.

Another exemplary embodiment relates to a method of recouping losses ina failed venture capital investment where the failed venture capitalinvestment is in a venture having an intellectual asset. This method caninclude obtaining cooperation from a debtor and any secured partieshaving security interests in the debtor, receiving full ownership of anintellectual asset from the debtor in satisfaction of an obligationincurred from an agreement with the debtor, holding the intellectualasset for one year from receiving full ownership of the intellectualasset, donating the intellectual asset to a permissible charitable doneeafter one year from receiving full ownership of the intellectual asset,and reporting an appraised value of the donated intellectual asset tothe Internal Revenue Service to obtain a tax deduction for the donation.

Another exemplary embodiment relates to a method executed by a computingdevice to provide investment risk minimization determinations where aninvestment is made in a venture having an intellectual asset. Thismethod can include receiving a determination of a value of anintellectual asset owned by an investment-seeking venture, determiningan investment based at least partially on the value of the intellectualasset where the investment is made in the investment seeking venture inexchange for a security interest in the intellectual asset, determiningminimum performance conditions for the investment seeking venture wherethe minimum performance conditions are indicative of conditions neededfor the determined investment to be recouped, and, upon failure to meetthe minimum performance conditions, determining tax benefits availablewhere ownership of the intellectual asset is obtained and donated to acharitable organization.

Other features and advantages of embodiments of the present inventionwill become apparent to those skilled in the art upon review of thefollowing drawings, the detailed description, and the appended claims.

BRIEF DESCRIPTION OF THE DRAWINGS

The invention is illustrated by way of example and not limitation in thefigures of the accompanying drawings, in which like references indicatesimilar elements and in which:

FIG. 1 is a general schematic representation of an investment riskminimization system in accordance with an exemplary embodiment;

FIG. 2 is a flow diagram illustrating an investment risk minimizationmethod in accordance with another exemplary embodiment; and

FIG. 3 is a flow diagram illustrating an investment risk minimizationmethod in accordance with yet another exemplary embodiment.

DETAILED DESCRIPTION OF THE EXEMPLARY EMBODIMENTS

A system for and method of risk minimization and enhanced returns in anintellectual capital based venture investment are described. In thefollowing description, for purposes of explanation, numerous specificdetails are set forth to provide a thorough understanding of exemplaryembodiments of the invention. It will be evident, however, to oneskilled in the art that the invention may be practiced without thesespecific details. In other instances, well-known structures and devicesare shown in block diagram form to facilitate description of theexemplary embodiments.

FIG. 1 illustrates a diagrammatical representation of an investment riskminimization system 100. In an exemplary embodiment, investment riskminimization system 100 includes an investor 110, a venture 120, and acharitable organization 130. Investor 110 provides a venture capitalinvestment in venture 120. In return for the venture capital investment,investor 110 receives a security interest in an intellectual asset (IA),such as, a patent, patents, or patent pending assets of venture 120. Inthe event of a failure to perform or achieve established parameters orperformance objectives, investor 110 assumes ownership of the securedassets. Investor 110 can then transfer (e.g., sell, license, donate,etc.) the secured assets to an organization or entity, such as,charitable organization 130.

Investor 110 can be an individual, corporation, partnership, or otherentity. Venture 120 can be an individual, a start-up company, apartnership, or other entity. The venture capital investment may be theform of cash, stock, a like kind investment, real estate, commercialpaper, or other investment instruments. Performance obligations can beany type of goal or objective by which the success of venture 120 may bejudged, either quantitatively or qualitatively. For example, performanceobjectives can include ROI goals over a predetermined period, earningsgoals, market penetration goals, gross sales goals, or other suchobjectives.

In an exemplary embodiment, investment by investor 110 is structured toallow tax advantages from donation of the assets to an approved InternalRevenue Code Section (IRC) 501(c)(3) charitable organization. Donationto an IRC Section 501(c)(3) charitable organization can offset earningsfrom other investments within an investment portfolio to reduce taxableearnings.

While the rules governing charitable contributions are primarily coveredby Internal Revenue Code (IRC) Section 170(m), Revenue Ruling 58-260provides the following specific insight into the deductibility ofdonated patents:

-   -   The fair market value of an undivided present interest in a        patent, which is contributed by the owner of the patent to an        organization described in section 170(c) of the Internal Revenue        Code of 1954, constitutes an allowable deduction as a charitable        contribution, to the extent provided in section 170, in the        taxable year in which such property was contributed. [emphasis        added]

The appraised fair value of intellectual capital (e.g., a patent) at thetime of disposal (e.g., donation) may be significant. The tax deductionobtained from the disposal can be used to offset gains from otherinvestments.

The funding of investor 110 may be generally broken into both an equity(majority) and debt (minority) transaction. The debt portion of fundingis secured by the portfolio company's IA. This IA is reclaimed in theevent of failure of venture 120 to achieve the established parametersand then auctioned or donated, Not all patents are believed to havedonation value. In certain cases, these assets may simply be held forfuture use or sale. In assessing the best disposition strategy,consideration should be given to the likely future market for thetechnology, the ability of other ventures within the same portfolio touse the IA and the competitive protection afforded other relatedventures by restricting competitive access to the IA.

In an exemplary embodiment, an independent valuation of the patents tobe donated must be done. As the value is market-focused, the priorbusiness result of the portfolio company will not strictly limit theappraised valuation. More specifically, the premise of value to be usedis “fair market value” defined as the amount at which the asset wouldchange hands between a willing buyer and a willing seller, within acommercially reasonable period of time, each having reasonable knowledgeof the relevant facts, neither under any compulsion to act, with equityto both.

As to the measure of proof in determining the fair market value, allfactors bearing on value are relevant including, where pertinent, thecost, or selling price of the item, sales of comparable properties, costof reproduction, opinion evidence and appraisals. Fair market valuedepends upon value in the market and not on intrinsic worth.

The cost or actual selling price of an item within a reasonable timebefore or after the valuation date may be the best evidence of its fairmarket value. Before such information is taken into account, it must beascertained that the transaction was at arm's length and that theparties were fully informed as to all relevant facts. Absent suchevidence, even the sales price of the item in question will not bepersuasive.

In a first exemplary embodiment, investor 110 obtains a securityinterest in the pending or issued patents of venture 120 at the time ofthe original investment. Such a security interest is structured suchthat ownership reverts back to investor 110 if venture 120 isliquidated.

In a second exemplary embodiment, investor 110 may alternativelystructure an investment in such a way as to assign the patent rights ofventure 120 to a separate Intellectual Asset (“IA”) Holding Companyunique for each investment (or collectively as IA Holdings) and thenoffer its portfolio companies an exclusive license cancelable if certainmilestones are not reached. This strategy also has the benefit of makingthe collective IA of portfolio investments available to all entities. Afurther advantage is the potential of such a LA Holding Company togenerate third party licensing income.

It is expected that the donated value of the IA may exceed the originalinvestment by investor 110 allowing for complete fund recovery on anafter tax basis. Investor 110 can use the tax advantages generated fromdonations of patents to offset income from successful investments. Thesetax savings value can be shared with the investor's limited partners byway of reduced management fees.

Advantageously, system 100 provides for venture capital or privateequity investor 110 to take a security interest in an IA in venture 120in order to secure the debt piece of an investment. In the event of adefault, investor 110, as a secured party, is governed by Article 9 ofthe Uniform Commercial Code (U.C.C.). Article 9 provides:

-   -   (1) a secured party can retain the collateral in full        satisfaction of the obligation, provided that proper notice is        sent to the debtor and other secured parties (if any) and no        objections are made or (2) a secured party may dispose of the        collateral in a commercially reasonable manner (and subsequently        pursue any deficiency) or, remit the excess to the debtor.

Currently, a new Article 9 to the U.C.C. has been adopted by a majorityof the states in the United States of America. New Article 9 modifiesprovision (1) (above) to provide for the retention of collateral inpartial satisfaction of the obligation. Partial satisfaction of theobligation allows the debtor to pursue any deficiency remaining afterthe debtor is credited with a value (of the collateral) as may be agreedto by the parties.

A charitable donation of collateral would not constitute disposition ina “commercially reasonable manner” under provision (2) described above.Thus, to retain the intellectual asset collateral, under provision (1),investor 110 must obtain the consent of the debtor as well as othersecured parties before making a donation of the collateral to aqualified charity.

Factors which may affect whether the debtor or other secured partiesconsent can include an economic analysis. If the debt owed to investor110 exceeds what the debtor and any other secured creditors perceive asthe value of the patent, it is likely that an agreement can be reachedwhereby investor 110 retains the patent in full satisfaction of thedebt. In an alternative environment, the debtor may consider anypersonal guarantees or other collateral held by the secured party. Forexample, if there is a personal guaranty or other collateral involvingsignificant personal items of the debtor or other valuable businessinterests, the debtor may wish to simply give up the patents in fullsatisfaction of the debt rather than risk personal loss or the loss ofother valuable collateral. In an alternative embodiment, the debtor maysimply want to be finished with an unfortunate experience and allow thesecured party to retain the collateral in full satisfaction of the debt.

In an exemplary embodiment, if a secured party disposes of thecollateral via an auction, the secured party may itself bid on thecollateral either with cash or via a credit bid, acquire it, and thenmake a contribution to satisfaction of the debt. However, such a bid topurchase patents may be a factor to establish a fair market value forpurposes of determining the charitable deduction.

As discussed above, investor 110 has the ability to make a taxdeductible contribution of the collateral (e.g., IA) as allowed underSection 170 of the Internal Revenue Code for charitable contributions.To give rise to a tax deduction, the contribution must be a transfer ofmoney or property to a permissible donee without receipt of economicconsideration or benefit in return. Whether investor 110 can utilize, inwhole or in part, the deduction allowable under Section 170 to reduceincome taxes depends on the situation of investor 110.

First, to qualify for a deduction, investor 110 must transfer its entireinterest in the property to a permissible donee. In an exemplaryembodiment, where the collateral is a patent, the transfer must consistof the patent and all rights pertaining thereto. The interest ofinvestor 110 in the transferred property must be unencumbered. Thecontribution must be completed and documented in the manner in which thetransfer of legal ownership of a patent is normally consummated. Forexample, the transfer can include execution of an assignment and theregistration of the transfer with the United States Patent and TrademarkOffice.

In an exemplary embodiment, contribution of intellectual assets can bemade to one of the following types of permissible donees: (1) a state, apossession of the United States, any political subdivision of a state orpossession, the United States, or the District of Columbia, so long asthe contribution is made exclusively for public purposes; or (2) anorganization described in Section 501(c)(3) of the Internal RevenueCode, which is an organization not classified as a private foundationunder Section 509(a) of the Internal Revenue Code. In the example of anentity described in Section 501(c)(3), a deduction is permitted only ifthe entity is created or organized under the law of any state, theDistrict of Columbia, the United States, or any possession thereof. Acontribution by a corporation to a trust, check, fund, or foundation isdeductible only if it is to be used within the United States or itspossessions exclusively for purposes specified in Section 501(c)(3)(3).However, the requirement that a gift by a corporation must be usedwithin the United States or its possessions does not apply if the giftis made to an entity that is organized as a corporation under the law ofany state, the District of Columbia, the United States, or a possessionthereof.

The amount of a deduction for a charitable contribution of a patent isequal to the patent's fair market value on the date of the contribution,provided that certain requirements discussed hereinafter are met.Revenue Ruling 58-260, 1958-1 C.B. 126. “Fair market value” is the priceat which the patent would change hands between a willing buyer and awilling seller, neither being under any compulsion to buy or sell andboth having reasonable knowledge of relevant facts concerning theproperty. Treasury Regulations § 1.170A-1(c)(2). To generate a full fairmarket value deduction, the donated property must be a capital asset inthe hands of the donor and must have been held by the donor for at leastone year prior to the transfer to the charitable donee. In the case ofproperty received by a donor on the foreclosure of a security interest,the holding period begins on the date the donor becomes the legal ownerof the property, not on the date the security interest was granted.

The amount that may be deducted by a taxpayer in any year is limitedunder Section 170(b) of the Internal Revenue Code. In the case of anindividual, a charitable contribution of property is generally allowableas a deduction to the extent that the aggregate of all suchcontributions for the year does not exceed 30 percent of the taxpayer'scontribution base for the year; a carryover of the excess to each of thefive succeeding taxable years is allowed. The term “contribution base”means the taxpayer's adjusted gross income computed without regard toany net operating loss carryback. Internal Revenue Code § 170(b)(1)(F).In the case of a corporation, the total deduction allowed for allcharitable contributions for any taxable year may not exceed 10 percentof the taxpayer's taxable income, computed with certain adjustmentslisted in Section 170(b)(2). A five-year carryover of the excess isallowed.

A further requirement for the deduction of a charitable contribution ofproperty is proper substantiation and reporting of the gift. Thefollowing rules apply to the gift of a patent:

-   -   A charitable contribution of a patent worth $250 or more must be        substantiated by the receipt from the charitable donee of a        written acknowledgment, obtained on or before the earlier of the        date on which the taxpayer files a return for the year in which        the contribution was made or the due date for the filing of the        return. The receipt must meet all requirements specified by the        Internal Revenue Service.    -   When an individual, closely held corporation, personal service        corporation, partnership, or S corporation claims a charitable        contribution deduction for a gift of property worth more than        $500, Form 8283 must be filed with the appropriate taxpayer's        income tax return for the year of the gift.    -   If a taxpayer is required to file Form 8283 for a gift of        property, and the deduction claimed for that gift and all        similar items of property exceeds $5,000, an appraisal        requirement also applies. The donor must obtain a qualified        appraisal of the property and attach an appraisal summary to the        income tax return on which the charitable contribution deduction        is claimed. A qualified appraisal may be made at any time from        60 days before the donation up to the due date for the return on        which the donor reports the gift. The appraisal and appraisal        summary must comply with regulations issued by the Internal        Revenue Service, and the appraisal must be conducted by a        “qualified appraiser,” as defined in the regulations. Treasury        Regulations § 1.170A-13.

The appraisal of the IA may be based on several methods. The most commonmeans for appraisal of the IA are the cost, market and incomeapproaches. The cost approach is based on the economic cost to replaceor recreate the asset. This method is based on the theory that therecipient of the IA or licensee avoids these costs by obtaining the IAfrom others. The cost approach considers the following items, amongothers: research and development, testing and regulatory approval costs,patent protection costs, equipment and other capital investments, andthe opportunity costs of diverted resources.

The market approach is based upon the arm's-length price paid incomparable transactions. This approach is based on the theory that theuser of the IA is not willing to pay more than others have paid forsimilar rights. Relevant criteria to assess what constitutes acomparable transaction include: nature of technology, extent of patentprotection, market size and characteristics, and the terms of thetransfer agreement including exclusivity and field of use restrictions.

The income approach is based upon the present value of the expectedfuture income stream that may be generated by the IA. This approach isbased on the theory that the user of an IA is willing to pay someportion of its economic gain from use. The computation of value is wellknown and based on the amount of the income stream, its duration and therisk associated with the income.

For portfolio companies seeking a subsequent round of investment, it iscontemplated that the Investor's residual rights may terminate upon thislater funding as such a release may be necessary to encourage thesecondary investment. Such secondary funding is often strong evidence ofthe likely success of the venture thereby reducing the potential forapplication of the inventive strategy.

FIG. 2 illustrates a flow diagram 200 of exemplary steps in a process ofinvestment risk minimization. In an exemplary embodiment, a step 210 isperformed in which an investor provides a venture with an investment inexchange for a security interest in an intellectual asset. An investorcan provide an investment as a first round funding investment or a seedinvestment. A security interest can involve a reversionary ownershipright which reverts upon failure of the investment or failure by theventure to meet parameters determined in the investment agreement.

After step 210, a step 220 is performed in which a determination is madeas to whether the investment has met established parameters, such as,when the venture has not met established milestones or parameters.Alternatively, failing to meet established parameters can include theending of the venture. Such milestone or parameters may include sales orprofit goals, customer penetration, strategic partnership agreements,establishing of a distribution network, or other factors fundamental tothe success of the venture.

If the investment fails to meet established parameters, a step 230 isperformed in which ownership interest in the intellectual asset goes tothe investor. For example, if the ownership asset is a patent, theinvestor is assigned ownership rights to the patent. After step 230, astep 240 is performed in which the intellectual asset is valued. Forexample, the fair market value (FMV) of the intellectual asset may beused. In an exemplary embodiment, the FMV of the intellectual asset isdetermined by using the cost, market or income approach describedherein. Alternatively, a value greater or less than the FMV can be used,wherein the asset is valued by other ordinary and accustomed valuationschemes.

After step 240, a step 250 is performed in which the intellectual assetis donated to a charitable organization. In an exemplary embodiment, theinvestor holds the intellectual asset for one year. After step 250, astep 260 is performed in which tax deductions are taken for the donationof the intellectual asset to the charitable organization.

FIG. 3 illustrates a flow diagram 300 of exemplary steps in a process ofinvestment risk and its minimization. In an exemplary embodiment, step310 is the form in which investor 110 obtains the consent of the debtorand other secured parties (if any). As explained above with reference toFIG. 1, Article IX of the U.C.C. requires cooperation of the debtor andother secured parties. After step 310 is performed, a step 320 isperformed in which investor 110 receives the entire interest of theintellectual asset subject to a security interest under the investmentagreement between the investor and the debtor.

After step 320, a step 330 is performed in which the receivedintellectual asset is held for one year from the date investor 110becomes owner of the property. This one year waiting period is intendedto achieve long term capital gain status. In step 340, investor 110identifies a permissible donee. As described above, a permissible doneeis prescribed by law.

In step 350, investor 110 receives substantiation from the donee. In astep 360, if the intellectual asset is valued over $5,000, a step 370 isperformed in which an appraisal by a qualified appraiser is obtained.After step 360 is performed or if the value of the collateral is notover $5,000, a step 370 is performed in which a report of the donationis provided to the IRS.

Investment risk minimization system 100 described with reference toFIGS. 1-3 advantageously provides investors with a means of recouping tosome degree losses in investments. System 100 is particularly usefulwhere investments are made in technology-oriented companies having fewtangible assets.

While the embodiments illustrated in the FIGURES and described above arepresently preferred, it should be understood that these embodiments areoffered by way of example only. Other embodiments may include additionalprocedures or steps not described here. The invention is not limited toa particular embodiment, but extends to various modifications,combinations, and permutations that nevertheless fall within the scopeand spirit of the appended claims.

1. In an investment risk minimization system involving a venture capitalinvestor and a venture needing investment from the venture capitalinvestor, a method comprising: identifying a venture having anintellectual asset; determining a value of the intellectual asset heldby the venture; establishing an amount of the investment at leastpartially based on the value of the intellectual asset; determining forthe venture minimum performance conditions needed for the investment tobe recouped over a predetermined period of time, wherein the minimumperformance conditions comprise at least one of a return on investmentgoal, an earnings goal, a market penetration goal, a gross sales goal ora combination thereof; transferring ownership of the intellectual assetto an intellectual asset holding company; providing the investment tothe venture or the intellectual asset holding company; receiving asecurity interest in the intellectual asset or equity of theintellectual asset holding company, the security interest securing anownership right to the intellectual asset or the equity of theintellectual asset holding company upon failure by the venture to meetminimum performance conditions; obtaining ownership in the intellectualasset or the equity of the intellectual asset holding company if theventure receiving the investment fails to meet the minimum performanceconditions; determining whether the intellectual asset or the equity ofthe intellectual asset holding company has residual value based onpredetermined considerations, wherein the intellectual asset or theequity of the intellectual asset holding company will be determined tohave residual value if it is determined that (i) there is a likelyfuture market for the intellectual asset, (ii) there is a likelihoodthat other ventures can use the intellectual asset, or (iii) there is alikelihood that other ventures can obtain competitive protection byrestricting access to the intellectual asset; determining that theintellectual asset or the equity of the intellectual asset holdingcompany has residual value and should be transferred to a third party;determining an appraised fair value for the intellectual asset or theequity of the intellectual asset holding company based on predeterminedfactors, wherein the factors comprise at least one of cost of sellingthe intellectual asset or the equity of the intellectual asset holdingcompany within a reasonable period of time, sales of comparableintellectual assets, cost of reproduction of the intellectual asset,opinion appraisals of the intellectual asset, and any combinationthereof; calculating a tax impact obtained from transferring of theintellectual asset or the equity of the intellectual asset holdingcompany to the third party; and transferring the intellectual asset orthe equity of the intellectual asset holding company to the third partybased on the appraised fair value of the intellectual asset.
 2. In aninvestment risk minimization system involving a venture capital investorand a venture needing investment from the venture capital investor, amethod comprising: identifying a venture having an intellectual asset;determining a value of the intellectual asset held by the venture;establishing an amount of the investment at least partially based on thevalue of the intellectual asset; determining for the venture minimumperformance conditions needed for the investment to be recouped over apredetermined period of time, wherein the minimum performance conditionscomprise at least one of a return on investment goal, an earnings goal,a market penetration goal, a gross sales goal or a combination thereof;transferring ownership of the intellectual asset to an intellectualasset holding company; providing the investment to the venture or theintellectual asset holding company; receiving a security interest in theintellectual asset or equity of the intellectual asset holding company,the security interest securing an ownership right to the intellectualasset or the equity of the intellectual asset holding company uponfailure by the venture to meet minimum performance conditions; obtainingownership in the intellectual asset or the equity of the intellectualasset holding company if the venture receiving the investment fails tomeet the minimum performance conditions; determining whether theintellectual asset or the equity of the intellectual asset holdingcompany has residual value based on predetermined considerations,wherein the considerations for determining whether an intellectual assetor the equity of the intellectual asset holding company has residualvalue comprise at least one of: (i) whether there is a likely futuremarket for the intellectual asset or the equity of the intellectualasset holding company, (ii) whether there is a likelihood that otherventures can use the intellectual asset or the equity of theintellectual asset holding company, and (iii) whether there is alikelihood that other ventures can obtain competitive protection byrestricting access to the intellectual asset or the equity of theintellectual asset holding company; determining that the intellectualasset or the equity of the intellectual asset holding company hasresidual value and should be transferred to a third party; calculating atax impact obtained from transferring of the intellectual asset or theequity of the intellectual asset holding company to the third party; andtransferring the intellectual asset or the equity of the intellectualasset holding company to the third party based on the residual value ofthe intellectual asset.
 3. In an investment risk minimization systeminvolving an investor and a venture needing investment from theinvestor, a method comprising: identifying a venture having anintellectual asset; determining a value of the intellectual asset heldby the venture; establishing an amount of the investment at leastpartially based on the value of the intellectual asset; calculating atax impact obtained from transferring of the intellectual asset to anintellectual asset holding company; transferring ownership of theintellectual asset to the intellectual asset holding company; providingthe investment to the venture or the intellectual asset holding company;receiving a security interest in the intellectual asset or equity of theintellectual asset holding company, the security interest securing anownership right to the intellectual asset or the equity of theintellectual asset holding company upon failure by the venture to meetminimum performance conditions; obtaining ownership in the intellectualasset or the equity of the intellectual asset holding company if theventure receiving the investment fails to meet the minimum performanceconditions; determining whether the intellectual asset or the equity ofthe intellectual asset holding company has residual value based onpredetermined considerations, wherein the intellectual asset will bedetermined to have residual value if it is determined that (i) there isa likely future market for the intellectual asset, (ii) there is alikelihood that other ventures can use the intellectual asset, or (iii)there is a likelihood that other ventures can obtain competitiveprotection by restricting access to the intellectual asset; determiningthat the intellectual asset has residual value and should be transferredto a third party; determining an appraised fair value for theintellectual asset based on predetermined factors, wherein the factorscomprise at least one of cost of selling the intellectual asset within areasonable period of time, sales of comparable intellectual assets, costof reproduction of the intellectual asset, opinion appraisals of theintellectual asset, and any combination thereof; and transferring theintellectual asset or rights thereto to the third party based on theappraised fair value of the intellectual asset.
 4. In an investment riskminimization system involving an investor and a venture needinginvestment from the venture capital investor, a method comprising:identifying a venture having an intellectual asset; determining a valueof the intellectual asset held by the venture; establishing an amount ofthe investment at least partially based on the value of the intellectualasset; calculating a tax impact obtained from transferring of theintellectual asset to an intellectual asset holding company;transferring ownership of the intellectual asset to the intellectualasset holding company; providing the investment to the venture or theintellectual asset holding company; receiving a security interest in theintellectual asset or the equity of the intellectual asset holdingcompany, the security interest securing an ownership right to theintellectual asset or the equity of the intellectual asset holdingcompany upon failure by the venture to meet minimum performanceconditions; obtaining ownership in the intellectual asset or the equityof the intellectual asset holding company if the venture receiving theinvestment fails to meet the minimum performance conditions; determiningwhether the intellectual asset or the equity of the intellectual assetholding company has residual value based on predeterminedconsiderations, wherein the considerations for determining whether anintellectual asset has residual value comprise at least one of: (i)whether there is a likely future market for the intellectual asset, (ii)whether there is a likelihood that other ventures can use theintellectual asset, and (iii) whether there is a likelihood that otherventures can obtain competitive protection by restricting access to theintellectual asset; determining that the intellectual asset or theequity of the intellectual asset holding company has residual value andshould be transferred to a third party; and transferring theintellectual asset or rights thereto to the third party based on theresidual value of the intellectual asset.
 5. In an investment riskminimization system involving an investor and a venture needinginvestment from the venture capital investor, a method comprising:identifying a venture having an intellectual asset; determining a valueof the intellectual asset held by the venture; establishing an amount ofthe investment at least partially based on the value of the intellectualasset; determining for the venture minimum performance conditions neededfor the investment to be recouped over a predetermined period of time,wherein the minimum performance conditions comprise at least one of areturn on investment goal, an earnings goal, a market penetration goal,a gross sales goal or a combination thereof; providing the investment tothe venture having the intellectual asset; receiving a security interestin the intellectual asset, the security interest securing an ownershipright to the intellectual asset upon failure by the venture to meetminimum performance conditions; obtaining ownership in the intellectualasset if the venture receiving the investment fails to meet the minimumperformance conditions; determining whether the intellectual asset hasresidual value based on predetermined considerations, wherein theconsiderations for determining whether an intellectual asset hasresidual value comprise at least one of: (i) whether there is a likelyfuture market for the intellectual asset, (ii) whether there is alikelihood that other ventures can use the intellectual asset, and (iii)whether there is a likelihood that other ventures can obtain competitiveprotection by restricting access to the intellectual asset; determiningthat the intellectual asset has residual value and should be auctionedto a third party; and placing the intellectual asset up for auction.